Out of state firms flock to the Marcellus Shale

Posted February 25, 2011

by Tim Schooley Pittsburgh Business Times

First came the early crawl, then the bold leap into the Marcellus Shale.

Following what is a growing trend of oil and gas companies opening small offices here and then quickly expanding, the Tulsa, Okla.-based natural gas company Williams is ramping up its western Pennsylvania operations.

After opening with a small office at Southpointe a few years ago, the company’s exploration and production division has leased nearly 30,000 square feet in the Embassy Park building Horizon Properties Group LLC is constructing at Southpointe II. At the same time, other divisions of the company are expanding into a new office at Westpointe in Moon Township.

“We’re steadily growing,” said Susan Oliver, a local spokesperson for the company, which employs 35 out of its Southpointe office now and 210 in Pennsylvania.

It’s become an increasingly common pattern for companies coming to western Pennsylvania to explore the region’s natural gas deposits in the Marcellus Shale: Start with a toe-in-the-water small office, learn the lay of the land and understand the potential, then commit to a larger expansion.

Dan Adamski, an executive vice president in the western Pennsylvania office of Jones Lang LaSalle, recalls that five years ago he wasn’t representing any oil and gas companies seeking to be in western Pennsylvania to explore the Marcellus.

Yet, in the past 18 months, he said he’s worked with 21 companies, along with other support companies, involved in the new natural gas industry here.

“Eleven of them were expansions from their initial offices,” Adamski said. “In almost every instance, they started with a small office space and then doubled and sometimes tripled their space. I see that as being very emblematic of the industry as a whole.”

That pattern includes Halliburton, the major oil and gas services company, which has expanded to a few offices throughout the region.

RANGE TOPS THE CHARTS

Other companies large and small have been quick to expand, ranging from services firm Baker Hughes to Dallas-based exploration company EXCO Resources to the Houston-based law firm of Burleson Cooke LLP, which took little time to expand its initial 3,000 square foot office at Southpointe to 13,000 square feet.

The biggest expansion that fits this description was also the first outside company to come to western Pennsylvania for the Marcellus: Texas-based Range Resources.

After first opening an office of five people at Southpointe in 2007, Range is now preparing a new 180,000-square-foot regional headquarters, also at Southpointe II and developed by Horizon, with a potential second phase that could see the building expanded to 270,000 square feet.

In comparison, the company’s early search called for an office of 10,000 square feet to start, with a tentative plan to expand to 30,000 square feet by the end of the first year — around the size Williams seeks to expand to now.

Range spokesman Matt Pitzarella expects plenty of other companies will face the kind of growth needs Range is facing now.

“A lot of companies are going to go through what Range is going through,” he said, pointing to Weatherford International, a services firm that hired more than 200 people locally last year. “As they beef up, they’re going to do two things. They’re going to need more office space and a lot of space for field operations.”

WILLIAMS’ GROWTH PLANS

Earlier this month, Williams announced that it was splitting into two companies: New E&P, focused on exploration and production, and Williams, focused on the infrastructure used to support natural gas production and use.

Oliver said she could not say exactly how many employees the company is looking to hire as part of its local expansion, but the company’s website lists job openings for petroleum engineers, technicians and different support positions in Canonsburg, Connellsville and Moon Township.

OFFICE LEASES EVOLVE

Mike Swisher, a principal of Horizon Properties Group, said he’s also seen a shift in lease terms the Marcellus companies have sought.

A few years ago, Horizon went against typical practice and accepted short three-year lease terms for the companies, typically from Texas and Oklahoma, still unsure of the potential of the Marcellus. Now, the companies are more comfortable with longer-term leases.

“I think what’s happened is when they started coming in the market two years ago, they didn’t know what was going to happen and they didn’t want a five-year lease,” he said, noting the initial three-year leases came at a higher rent level. “Now, we’re seeing them get comfortable for five-year leases, seven-year leases, 10-year leases.

“They’re going to come in with more confidence that they’re going to be here for a five-year period.”

It’s an industry boom that Swisher could only compare to the dot-com era at the turn of the millennium. The biggest difference, he added, is those companies didn’t take long to go out of business at a similar stage, whereas the Marcellus companies are growing more comfortable and making longer-term commitments here.

Swisher also expects the companies still to come to the Marcellus to start forgoing the shorter, smaller trial-size office leases and make larger commitments from the beginning.

To Dan Adamski, it points to a new, more established stage for the industry here.

“These firms looking at the market are moving into a maturing business,” he said.

While he noted that most of the major players in the industry are now here, it remains an open question for Adamski and Swisher how many companies are still to come here.

Jon Harrigan, president of Pennsylvania Commercial Real Estate Co. based Downtown, who is part of a partnership that leased its development of a flex office building to Talisman Energy in early 2010, expects plenty of room to grow still.

“They’re just scratching the surface as far as production and what it means,” Harrigan said. “It’s a boom for the area for sure.”